Too Loose for Comfort

This paper argues that the benefits of the current US and UK monetary policy are limited and outweighed by significant costs. The policy of low or negative real interest rates, combined with quantitative easing, may be helpful to large companies and large banks. However, due in part to changes in the financial system over the past 30 years, the policy has not resulted in sufficiently lower borrowing costs or increased access to credit, especially by job-producing SMEs, to compensate for the adverse impact on savers, endowments, pension funds, insurance companies and others. We conclude that the policy is probably retarding rather than assisting economic recovery and that funds used for quantitative easing could be more usefully put towards a form of ‘credit easing’.